from the caps-and-pap dept

As we just recently discussed, broadband providers appear to finally be willing to give up their pretend need for data caps due to the pretend costs of delivering service. The story they told essentially was that, without data caps, congestion would clog the interwebz tubes and that laying bigger tubes was way too costly. Perhaps noteably, this rarely resulted in actual hard caps on data, but rather provided a convenient excuse to charge more for more data service, regardless of the effect or cost of delivering that service.

Verizon (VZ) posted a pretty impressive holiday quarter (one-time charges aside) with a good outlook on Tuesday, and the company’s share price rose as a result. There were also plenty of interesting takeaways from the carrier’s earnings call, but The New York Times’ Brian X. Chen zeroed in on one item of particular interest. Verizon launched new “Share Everything” plans last summer that make smartphone data more expensive for many users. The best thing about these plans for investors — and, not coincidentally, the worst thing about the plans for subscribers — is that Verizon is now making more money off of smartphone data as costs associated with transmitted that data are falling.

It really doesn't get much simpler than that. The 4G LTE network is efficient to the point that delivering the service costs less than the 3G network, yet the price to consumers is going up. To be clear, the problem here isn't that Verizon is making money. Rather, the problem is that this comes from the same company that built a business model around low caps and high overage costs while also claiming that caps were the sign of a "competitive market." For those of you playing along at home, it's precisely because of a lack of competition that Verizon can at once have its costs drop while raising prices on its services. Were there more competition, someone new would compete on price or value of service. As it stands, Verizon can use their faster service and low caps to further the aforementioned business model.

As an added bonus, Chen noted that Verizon’s faster data networks also cause users to eat through their data allowances more quickly. This eventually prompts them to buy more expensive plans with higher data caps, which of course net Verizon even more cash.

As a Verizon customer myself, these kinds of signs that there isn't enough competition for my dollar are quite frustrating. On top of that, the model is specifically designed to provide a great service and then drop a bunch of obstacles in its path... it's maddening.

from the need-pressure-from-somewhere dept

Amazon announced a ton of new ereader/tablet devices this morning, which is being covered to death on the various gadget blogs out there. While some of the devices look interesting (and could put some pricing pressure on other tablets), what caught my eye was the addition of a 4G LTE mobile data plan on the Kindle Fire HD. It's $49.99 for the year, though it's limited to just 250MB per month -- which is tiny. Amazon has included mobile data before in its Kindles, but those were strictly for books (which don't take up that much data). As they go further into the fully functional tablet world, this starts to become more interesting. That's because mobile data continues to be something of a racket, with just a few national providers: Verizon, AT&T, T-Mobile and Sprint (and there are limitations there). The pricing offered by those guys always seems to border on collusion (amazing how closely they track each other's pricing changes) and is always focused on keeping the prices very high.

Amazon's offer here is a way to tiptoe into that pool with something of an alternative. Yes, they're just piggybacking on someone else's network via some sort of MVNO (mobile virtual network operator) agreement, so you're still really using one of the national carriers' networks. But from a consumer standpoint, it is offering something of an alternative for mobile data, at much more reasonable prices (though, obviously, the super low caps match that super low pricing). That, alone, doesn't revolutionize mobile data pricing, but it does seem like a way for Amazon to get its foot in the door and expand over time. Amazon has a long history of figuring out ways to do things in a consumer-friendly manner, even if it means undercutting others to do so (which has made it a few enemies). In the presentation itself, Jeff Bezos noted that they're focused on making money elsewhere -- basically as people buy things via the device -- and thus the company has tremendous incentive to keep the prices of the devices and the service quite low. And that has the potential to be quite disruptive.

In some ways, I look at it as similar (in a very different context) to Google's fiber effort in Kansas City. In both cases, you have companies sort of dipping their toes in the water of ancillary markets that make their primary markets more valuable. They're very limited at this time, and many people may brush them off as being useless. But that's what always happens with The Innovator's Dilemma. Offer something simple and small, and the legacy players brush it off as too small or too limited to matter. But keep improving on that, and you undercut legacy providers without them fully realizing what's happening -- often because you're using your tiny and "weak" efforts there to actually enhance your primary market, where the traditional players have no presence.

Lots of people are reasonably mocking the 250MB limit. It is kinda useless. But, look at it as a wedge, and the beginning of the climb up the innovation slope, making Amazon's core business more valuable... and things could actually get quite interesting.

from the up-to-something... dept

It's been nearly a decade since we first started calling out various broadband providers for hyping up their connections speeds using "up to" language, where they say you may get speeds "up to" X Mbps. Up to is the ultimate weasel phrase, because you never have to get anywhere near it, and can actually be well under it, and still be "accurate." Every so often federal regulators jump into the debate -- warning companies about this practice. At least a few broadband providers (especially in the US) have started to move away from using "up to" marketing. But it still is rare to see regulators actually go after anyone for making such misleading claims. Broadband Reports points out that UK telco regulator Ofcom seems to come out with a report every single year at this time promising that it's about to crack down on "up to" marketing, but never actually doing so. At some point, companies realize that the threats about "up to" language are about as accurate as the "up to" claims themselves.

from the pay-more,-get-less dept

You may recall, from a few years ago, the concept of "Verizon Math," where the company had tremendous trouble understanding the difference between dollars and cents once you added decimals into the equation, repeatedly telling someone that .05 cents was the same as .05 dollars. While this isn't quite as insane, Techdirt reader Pangolin shares with us his experience in trying to see if there was a better deal on his Verizon MiFi that would let him use more than the capped $60/5GB plan at a reasonable rate. Since he was going to be using the MiFi more frequently, and might have to download large files for work, he was worried that he'd be going over the cap, and the $0.05 dollars per MB overage fee seemed high. He figured there must be a "pro" or "business" plan that might make more sense.

After searching and being unable to find it, he began an online chat with a Verizon rep (included in full after the jump below) where he discovered that the upgraded plan was for twice the data... but for more than three times the costs: 10GB for $199. And overage rates? On that plan, they're knocked up to $0.25/MB. As Pangolin notes, why would anyone pay for that, when they could just buy two or even three of the regular MiFi plans, and get a ton more data transfer and significantly lower overage fees even if they did go over. Verizon's answer? "Sorry."

For what it's worth, as Pangolin notes, there's no info online about a higher capped plan, and I contacted Verizon Wireless PR to ask them if such a plan existed. I got back a non-answer, pointing to the webpage showing the 5GB cap. So I asked again. And got no answer. So I asked again. And got no answer. On the fourth try, I was finally told that such a plan does not exist. Yet, if you look around many others have been offered the same plan, and various websites have reported on it as well. So, it sounds like Verizon does offer this oddly priced plan that makes no sense... but just doesn't want to admit it. It makes you wonder why they even bother at all.

In what world does it make sense to charge significantly more for less on an upgraded plan? Full transcript of the chat after the jump...

from the was-it-such-a-ridiculous-suggestion? dept

A little over a month ago, I suggested that Sprint and Palm were making a big mistake in not offering the Palm Pre for free (more specifically, saying that Sprint should subsidize the full price). I don't think I can recall a post where more people told me I was so totally wrong. People insisted it was the dumbest idea ever, and that it would harm the brand value of the Pre, while costing Sprint way too much money. Yet, I still stand by that claim. Sprint doesn't make money selling the phone, it makes it by getting people to sign up for at least two years of Palm Pre service -- which is on the higher end of the service scale. The Pre is not as good as the iPhone, and did very little to really stand out from the competition. So the way to get around that is to offer the device for free.

Of course, my other big complaint with the Palm Pre -- its weak developer support still stands. Famed developer Jamie Zawinski just wrote about his absolutely ridiculous experience trying to get two simple apps available on Palm Pre phones. It's taken months, and they're still not available, even though he wants to make them available for free. Instead, as with the iPhone, the "approval" process of getting apps into the app store are positively ridiculous. I had been seriously considering getting a Palm Pre (in fact, a few months ago, I was positive I was going to get one), but without real developer support, it's just not worth it. I'll wait until a decent Android phone is available instead.

from the great-moments-in-marketing dept

I recently explained why I thought Sprint made a rather large strategic marketing error in pricing the Palm Pre at the equivalent price of an iPhone: $199 (after annoying mail-in rebate that turns many buyers off). In fact, I argued why it would make a lot more sense to further subsidize the phone all the way to free, and make up the money on the backend with more subscriptions. Given how heavily invested Sprint was in the Pre, and how pathetic the sales have been to date, it really makes very little sense to keep the price so high. So, at the very least, I thought it was a good first step this morning when it was "announced" that Sprint was offering the Pre at $99. Of course, there were some silly things about this promotion as well. First, it only applied to new customers, transferring numbers over from other carriers. What better way to mock your loyal customers than to offer others a better deal? Second, they didn't just discount the phone, but gave you a "credit" that was split over the first three bills (better than a mail-in rebate, but still annoying). However, what was even stranger was that Sprint didn't even seem to understand the promotion itself. John Paczkowski noted that in some places on Sprint's website it said the promotion ran until October 10th. In others it said October 31st.

Apparently, the confusion at Sprint headquarters went well beyond that, because as the company attempted to sort out the confusion, it announced that it was doing away with the special promotion entirely. And yet, even after announcing it, the offer page remained on Sprint's site. It's not at all clear what happened here, other than Sprint seems somewhat clueless in how to do basic promotions, pricing and marketing. Obviously, the company intended to offer the phone for $99 -- it's on the company's own site. And yet, now it's suddenly claiming that it was a mistake? I can already see the business school case study on how not to launch an innovative smart phone.

from the just-get-that-sucker-out-there dept

There was plenty of hype around the launch of the Palm Pre, which by all accounts is a pretty damn good phone (I've played around with it, and like it). However, Palm and Sprint made two huge mistakes in marketing it. First, they didn't have a really well-developed developer community building apps for it, so the app store is pretty weak. Apple did this with the iPhone when it launched (and we dinged them at the time as well), but Apple got away with it for two reasons: Apple is leading the field in such smartphones, and it's Apple, who seems able to bring developers to the table with cultish enthusiasm and loyalty.

Palm doesn't quite have that.

If the problem was that the SDK wasn't ready, Sprint and Palm should have waited. Launching before the phone was really ready was a mistake, and the company may be paying for it with rather weak sales after an initial burst. However, one analyst has a suggestion that I think makes a lot of sense, saying that Sprint should drop the price of the Palm Pre to $0.99. Basically, let Sprint subsidize more of the phone -- which it would easily make back in service fees (since the phone requires a two year contract with its most expensive data plan). Pricing the phone at $199 makes it a direct comparison to the iPhone, and that's the last thing that Palm or Sprint should want. But dropping the price to $1 (or, hell, give the damn phone away for free with a two year plan), would get it a lot of attention, and give people a real reason to switch away from other carriers or other phones, and give the Pre a shot. Trying to compete with the iPhone by just saying "but we're better" doesn't work. Rather than spending tons of money on creepy TV commercials that make no sense, why not use that ad budget to subsidize the phone in a way that really builds up a lot of attention and serious buyers? If Sprint did that, I'd go sign up for a Palm Pre that very day.

from the a-good-kind-of-deflation dept

T-Mobile has announced that it's expanding its offer of a $50 per month unlimited voice service plan across the US, becoming the first of the country's four biggest operators to start to fall into line with the $50 voice ceiling. Given the constant price battles in the mobile industry, you'd expect the other major operators to follow T-Mobile, or lower the prices of their current unlimited offerings that also include text messages and data. But one interesting aspect of the T-Mobile plan is that it's only available to customers that have had T-Mobile accounts in good standing for at least 22 months, making it more of an effort to retain existing customers than attract new ones. This reflects the rapidly changing focus of the business from attracting new customers to also retaining current ones. One of the quandaries posed by US mobile operators was that, historically, they gave better deals and prices (especially on new handsets) to new customers than current ones, giving good customers an incentive to churn to a rival so they could get a free new device. This stance has changed over the last couple of years, as the industry standard contract length has grown from one to two years. Second, the T-Mobile offer reflects the company's standing in the market. Its quarterly net subscriber additions are falling, while the company's seeing a lot of competition at the low end of the market. This new plan is aimed at helping on both fronts.

from the hey,-that-sounds-familiar dept

As was widely expected, it turns out that all the hype and fuss about the iPhone costing $199 was really hiding the key facts: it's only that price if you're buying it in the US, along with a long term contract with high service fees. At first it actually appeared as though the only possible way you could buy the phone was with one of those contracts. However, AT&T has now admitted that it will indeed sell the phone without a contract, but the price will be $599. While some unlockers may find that worthwhile, it's probably a bit much for most. Still, this once again highlights how Apple's predictions that it was going to change the economics of the mobile phone industry haven't actually been true. There are plenty of mobile phones out there that you can buy subsidized under a contract, which cost 3x as much without a contract. So, rather than changing the economics of mobile phones, Apple has now completely bought into them. Update: Of course, as some are realizing it's actually cheaper to buy the subsidized version and break the contract. The early termination fee is less than the difference here, so you end up doing better that way.

from the can't-play-that-game-any-more dept

When we wrote about the iPhone pricing immediately after the Steve Jobs keynote, it wasn't entirely clear what the details were, and if AT&T/Apple had shifted to a typical carrier-subsidized model. However, the details quickly became clear. Indeed, Apple and AT&T ditched the deal they had last year, whereby Apple actually received a cut of AT&T's service fees. Instead, AT&T is buying the devices directly from Apple and then selling them (at a loss) to customers who will need to sign up for a more expensive service and a two-year contract (rather than the old one-year contract). Basically, this is back to the traditional model of mobile phone sales -- which Apple had suggested was a thing of a past just a year ago.

Either way, though, the deal works out fine for Apple. It still gets the full price it needs to get on the iPhones and doesn't have to worry about recouping service fees from folks who unlock iPhones. AT&T, on the other hand, now becomes a lot more reliant on service fees, first to make up for the loss on the device sale, and then to show growth in its 3G network usage. To that end, it appears that AT&T has totally ditched the old model where you could buy an iPhone and "activate" it on your own. No more. Now you have to both buy and activate the phone in stores. You can't order the phones online and have them delivered to be self-activated. In Engadget's post, the writer seems confused by this, and quotes AT&T's bogus claim that it did away with self-activation because the company "found that many others wanted to complete purchase and activation in one step so they could walk out of the AT&T store with their iPhone up and running." If that were the case, they could have just added in-store activation, without removing the option for self-activation.

The real reason seems pretty obvious: if you have to both buy and activate the phones at the same time and they require a two year contract, it's a lot trickier to get your hands on an iPhone for unlocking purposes. Since the full process is supposed to happen at once, it seems unlikely that stores will be letting people walk out the door with an iPhone that doesn't also have a contract. Those hundreds of thousands of unactivated iPhones that disappeared into China? Not so easy this time around (of course, you'll also note that the new iPhone will be available in 70 countries, so they're trying to stamp out the issue from the supply side too). Yes, there will still be 3G iPhones out there that can be unlocked, but that market is going to dry up significantly and cost a lot more.